econ vocab unit 4

cartel

cartel

a group of firms that act together and have formal agreement not to compete

collusion

an agreement (usually illegal) to agree on the price and the quantity produced in a market

dominant strategy

the best choice for one player regardless of what the other player chooses

game theory

the study of how people and firms act strategically in the context of a game

monopolistic competition

this form of market structure is characterized by many medium-sized firms that need to innovate and differentiate their products in bothe price and non-price competition

nash equilibrium

game theory outcome that occurs when both players choose the action that is best for them given the actions of the other players and reach the smae payoff matrix cell

oligopoly

this form of market structure is characterized by relatively few sellers who act interdependently and/or collusively to be price makers There are strong barriers to entry and exit

MR=MC

profit maximizing criterion for monopolistic competition and oligopoly

P > MC

relationship between price (p) and marginal cost (MC) for both monopolistic competition and oligopoly

P = average total cost

tendency for monopolistic competition in the long run

derived demand

the demand for a resource such as labor is derived from the product that the resource helps to produce

Least-Cost Rule

of multiple inputs that states that to minimize costs (like any profit-maximizing firm), a firm will adjust the ratio inputs until (L is labor and K is capital)

marginal factor cost (mfc)

the additional cost for each additional unit of labor hired

marginal revenue product (MRP)

the addition to the firm's revenue as the result of an additional output for an additional unit of labor

monopsony

a market in which there is a single buyer of labor

least cost rule formula

Marginal Revenue Product Formula

delta total revenue/ delta resource quantity OR MR x MP

Marginal factor product/cost formula

delta total resource cost/delta resource quantity=wage

optimal hiring point

MRP=MFC (marginal revenue product= marginal factor cost)